The Los Angeles Times drops into the debate over whether or how much prices would have to rise at fast-food restaurants for their employees to get $15 an hour.
Actually, this is the first time I’ve seen the question of whether prices would rise treated seriously. Even the bad-math types we’ve seen in the last few weeks have always assumed some price increases.
But the LAT runs with this dumb-question headline:
Would a higher minimum wage mean pricier burgers?
Writing about the burgeoning protests by low-wage workers for a $15 an hour wage, the paper writes this:
That raises the question: If they’re successful, will burger prices soar?
Expert opinion is mixed. The current federal minimum wage is $7.25 an hour. More than doubling that level would be an unprecedented leap.
Sylvia Allegretto, a labor economist and co-chair of the Center on Wage and Employment Dynamics at UC Berkeley, said it’s unclear whether a minimum wage bump would have enough of a ripple effect to affect consumer wallets.
“Many people have assumed that if you increase the minimum wage by X percent, the meal costs will increase by the same percent, and that’s simply not true,” she said. “There are so many other factors at work.”
No, expert opinion is not mixed on whether doubling minimum wages would “affect consumer wallets,” even if the LAT found one academic to sort of say so. If labor costs doubled suddenly, restaurant owners would have to raise prices significantly in order to stay in business. It’s just math.
Last week, I moved to the workers’ paradise of Denmark, where I will man the Audit Aalborg bureau for a year while my wife is here on a Fulbright. One of the things that’s striking here is the disparity between the cost of food at restaurants and at grocery stores. The minimum wage in Denmark (ADDING: I should say that this is an effective minimum wage negotiated with unions, not a legal one) is roughly $20 an hour (though teenagers can earn somewhat less). Not coincidentally, labor-intensive restaurants have very high prices, while less-labor-intensive grocery store prices are much less shocking.
The average full-time equivalent McDonald’s employee in Denmark makes about $45,000 a year in total compensation. Forty-five thousand dollars! Even after high Danish taxes, that average worker will take home some $28,000 a year, roughly double what a full-time American McDonald’s worker will. To add insult to injury, the Dane gets at least five weeks of paid vacation while the American is lucky to get off (unpaid, of course) when her daughter is home sick with the flu.
And so at the Aalborg McDonald’s, for instance, a Big Mac extra value meal costs 58 kroner, or $10.25, while the Dollar Menu is the 10 kroner menu, which means it’s the dollar-seventy-seven menu here. In Denmark, taxes are included in list prices, unlike in the US, so backing out the 25 percent VAT gives us $8.20 for a Big Mac meal and $1.41 for the “dollar” menu. That compares to $6 and $1 in Seattle.
According to Bloomberg View’s Caroline Baum, such a high minimum wage should mean that scads of Danes can’t find work because it “violates the most basic principle of economics”: the law of supply and demand.
Of course, Baum is empirically wrong. Denmark’s unemployment rate is 6.8 percent, despite its close ties to the depressed eurozone. That’s well below the 7.4 percent rate in the US, where the minimum wage is $7.25. The labor participation rate for working-age Danes is 64.4 percent, which means Danes are more likely to work (despite their super-generous welfare state, which includes earlier retirement) than working-age Americans, 63.6 percent of whom work. And amongst teenagers and those aged 20 to 24—the group most likely to have low-paid jobs—far more Danes work than Americans, as this Bureau of Labor Statistics chart shows:
Baum ignores the fact that higher wages for lower workers means dramatically increased demand for goods and services from them, and it incentivizes work. McDonald’s Corporation itself understands this, though it would never, ever say it in English. This is from its Danish annual report (thanks Google Translate!):
A very large proportion of the 3,904 employees are thus not employed full-time PA, but if you convert employment for them full-time positions, equivalent to 2,040 full-time jobs. This means also that McDonald’s spent 559 million. per annum, salary and pension in 2011.
It is money that, for the vast majority of whom, in addition to going to tax also goes to consumption, thereby helping to stimulate economic activity in Denmark.
Alas, rather than figuring any of this stuff out itself, the LAT just turns its piece into a he said/she said story, dialing up Michael Saltsman of Rick Berman’s restaurant-lobby front, the Employment Policies Institute. Worse, the LAT doesn’t tell readers anything about how their neutral-think-tank-sounding expert is actually an anti-labor industry shill.
This is a critically important issue, and it deserves much better coverage than that.
Further reading:
A Big Mac miss by The Huffington Post. Poor reporting on a “study” by a Kansas undergrad.
Big Mac numbers too good to check—or to correct. Fixes and non-fixes following a Huffington Post story.
Daily Beast doubles down on Big Mac minimum wage nonsense. Extrapolations collide with hard numbers.
John Stossel’s poor logic on minimum wages and jobs. Fox host fails to explain away Australia’s high wages and low unemployment
Denmark is a country of what, 5-million people? About 90% native 'white' (the minorities there are refugees from the former Yugoslavia). I'll bet crime rates are lower, too - so let's adopt Danish criminal justice laws! If they work in Denmark, they must be transferrable to the rest of the world!
In spite of this advantage of a highly homogenous population, Denmark's unemployment rate is worse than that of Germany, which has no minimum wage. This in spite of Germany having had to absorb the population of its formerly communist sections in the past generation and a more challenging demography than (until recently, mostly agricultural) Denmark.
These pieces turn out to be a form of cherry-picking. How about comparing Denmark's unemployment rate, growth rates, and complexity of industry to that of Texas, while we're at it? The US, is, after all, dragged down by its biggest state, California, and the mania of the political class there for taxes and regulations. I'd think California/Texas would be a somewhat more instructive comparison than a rather cimple white utopia with a population the size of Colorado. The New Republic ran a similar piece about Denmark a few years ago. Utopia always seems to be in these Scandinavian countries. A journalist from a multi-cultural society should ask about this coincidence. I hear that Australia, which also has high minimum wages, is turning back boat people these days. Hmm.
#1 Posted by Mark Richard, CJR on Thu 5 Sep 2013 at 12:49 PM
What exactly is the advantage, in employment terms, of a highly homogenous population? I don't see how race figures causatively in the minimum wage issue.
How is the US dragged down by California, which provides 15% of national crops, a huge amount of culture and entertainment, and $1.28 in federal taxes for every dollar in federal benefit received?
The point of the article is that having a high minimum wage, and even a generous welfare state, does not have to mean economic collapse. This does not require equivalent comparison to the US or to any state in the US, all it requires is that Denmark serve as a counterexample to the assertion that raising the minimum wage will make products unaffordable and unemployment impossibly high.
If your argument is that such a thing can only happen in a nation overwhelmingly populated with white people, it would be interesting to hear the mechanism you feel is responsible for that. You seem to simply be choosing snippets of information and tying them together into a worldview, without regard for whether they fit each other or follow logically. Cherry-picking, if you will. Except without the actual argument, something the article deigns to have.
#2 Posted by Bill Mellor, CJR on Thu 5 Sep 2013 at 02:26 PM
Denmark like Germany or Switzerland does not have minimum wage laws. They use corporatist collective bargaining agreements instead. Besides having quite high taxes Denmark also has a very high degree of economic freedom (including labour market flexibility).
Having said that: country-by-country comparisons that only look at one aspect and not controlling for confounding variables or the whole system are highly problematic in general.
#3 Posted by PasserBy, CJR on Thu 5 Sep 2013 at 03:02 PM
Mark, I'm having a hard time understanding what the homogeneity of a society has to do with its minimum wage. Yes, the backlash to the US welfare state has been in no small part due to racial fears, but I'm not talking about the Danish welfare state. I'm talking about wages for working.
There are many, many factors that affect employment levels in an economy. The point is not to compare Denmark to Texas or whatever, but to show that contra the entire right wing, high minimum wages do not preclude high levels of employment even in lower-skilled population groups.
#4 Posted by Ryan Chittum, CJR on Fri 6 Sep 2013 at 02:57 AM
In spite of this advantage of a highly homogenous population,
I have never understood this argument. Would you please expand it?
#5 Posted by Steven Jandreau, CJR on Fri 6 Sep 2013 at 04:58 AM
To the other Mark Richard, thanks for your thoughtful question. One of the big divides between 'conservative' and 'liberal' analysts is that the latter emphasize policies and programs as an explanation of outcomes, while the former stress the more complex role of culture and the counter-productive outcomes often produced when policies ignore cultural values. Denmark is a small consensus society with widely-shared 'Protestant-ethic' attitudes about work, savings, investment, and other factors that are cultural in origin and have economic consequences. The same goes for all those other Scandinavian societies worshipped by some Americans.
This should not really be a controversial assertion. We have wide income/wealth disparities in the US among different 'groups', with Jews and Asians coming out higher than generic 'whites', and it's not because US economic policies are intended to favor Jews and Asians. Doesn't anyone read Max Weber anymore?
The high minimum wage is a form of income redistribution among this culturally-homogenous population, since the rate is way above the market value of a McDonald's worker- that's why it has to be imposed as government policy. Culturally (not racially) homogenous societies are more likely to be agreeable about entitlement policies, since those societies contain people who share fundamental values and experiences. (In central Ohio, where I live, the high-taxing school districts are the richest ones. People will willingly be taxed to support values their regard as their own.) Your contention reminds me of those of the intellectual apologists for other utopias in the 20th century, marveling that dams and canals and power stations could be constructed without capitalist processes and motives in the Soviet Union and elsewhere. Ask Ryan what Denmark's record on immigration is - my recollection from The New Republic article is that its policies are pretty harsh, much more so than here. (High-minimum-wage Australis is turning away boat people, and immigration is a top issue in the upcoming elections.) These systems could not withstand competition from people who are willing to work at McDonald's for less than $45,000 a year, so those peope are excluded by law. In this country, our reluctance to impose one-size-fits-all policies is sensibly reflective of the fact that the US is not a one-size-fits-all country. Is Ryan willing to concede that those McDonald's wages are a form of hidden subsidy, like what we could call 'welfare benefits' here in the US, rather than a true market cost of labor, and are made available to working people as a fig leaf?
The cultural cohesion argument is relevant to places like Denmark and suggests why outsiders are impressed. See, we can have minimum wages of $20 an hour or whatever, and the system doesn't collapse. See, we can, the Swedes might say, have maximum sentences of 18 years in prison for a mass murderer - this 'refutes' the idea that anomie would be the result of application of our rules in other societies. The 'right-wingers', contrary to what you suggest, simply say that all other things being equal, the fixing of wages and prices produces less impressive economic outcomes than leaving wages and prices alone. All things are not 'equal' in two countries as massively disparate as the United States and Denmark.
I pointed out that Germany, whose unemployment rate is lower than that of neighboring Denmark, has no minimum wage. It is Germany, a somewhat more diverse society than that of Denmark, which is being called upon to rescue the high-tax, high-regulation economies of southern Europe. Does that 'prove' 'contra' the left-wingers, that no minimum wage does not 'preclude' broad-based prosperity and low youth unemployment? Germany deals with youth unemployment in other ways. So does the United States on its good days.
To Bill Mellor, sigh, the race card. Where did I say prosperity only can occur in 'white'
#6 Posted by Mark Richard, CJR on Fri 6 Sep 2013 at 01:32 PM
(Cont'd) societies? I was (obviously) talking about culture, not race. Sometimes they appear to be co-terminus, but there really is no excuse for lazily mixing the two in order to get to some 'you're a racist' argument that is the crack cocaine of a certain kind of bourgeois thinking in this country. Quite a lot of disagreement about issues cannot be crammed into a little box called 'bigotry vs. tolerance' (with 'bigotry' being defined, mistakenly, as a particular set of beliefs rather than a generally-applied mental attitude), in spite of the best efforts of some folks.
#7 Posted by Mark Richard, CJR on Fri 6 Sep 2013 at 01:51 PM
Finally, since you asked, Mr. Mellor, California's unemployment rate is persistently higher than the US rate as a whole, so by definition the Golden State's animus against industry and job creation (mostly due to regulations, particularly in the area of environmentalism and health) pushes the national rate higher. The last Census showed California gaining no Congessional seats, meaning its population (=jobs creation) was not ahead of the rest of the country's. The next Census will show relative decline. California's political climate is toward making the state an enclave for sexy industries for leisure class workers and consumers - tech, entertainment, tourism. If your skill set is outside those areas, you will look elsewhere for a job or to start a business. The Economist ran a piece some months ago detailing the garbage a budding entrepreneur who made unusually good yogurt had to go through to start a small business. The entrepreneur, a woman from India, finally gave up. The state is still potent - so is New York - but the world doesn't stand still, and by every precedent, the California moment in terms of mass opportunity and innovation has substantially passed.
Still a great place if you can afford to live in Marin County. Manhattan is still a great place to live if you can afford the rents. Most people can't. How's the average-income person doing?
#8 Posted by Mark Richard, CJR on Fri 6 Sep 2013 at 05:03 PM
Denmark had an immigration restrictionist government from 2001-2011 that did much to crack down on newcomers. If you want to drive up the wages of American fast food workers, cutting down on immigration is one obvious place to start.
#9 Posted by Steve Sailer, CJR on Fri 6 Sep 2013 at 11:42 PM
There is no minumum wage in Denmark! Early retirement has been abolished too, recently and generally, yes, it is a good place for people in work, but those who have lost their jobe are getting more and morch witch-hunted and their benefits have over the last years been cut severely, a proces that seems neverending, regardless what partie make the government. Alas, Denmark is on the way to becoming a "little America" the former highly solidaric and egalitarian society is becoming "greed-is-good-free-market" worshipping place very much to the horror of about half the population who see their country destroyed by a hostile capitalistic take-over.
#10 Posted by Romed Bucher, CJR on Tue 10 Sep 2013 at 10:42 AM
Minimum wages still exist in Denmark, early retirement is still possible and those without a job still get 2 years of unemployment benefit, before they must go to the reduced benefit-level, around 3/4 of the unemployment benefit. Universal medicare is still the norm and goal, and public kindergarten and schools are used by the vast majority as are free of charge colleges and universities. To have this we pay more than 50% of our incom in taxes, vat and all sorts of very creative and regulatory special taxes. 1 liter of petrol cost now 13 kr., so you drive carefully and only the necessary. We pay gladly, as you can see from todays news, that Denmark again is the happiest country in the World.
This is a result in part from an almost tribal society, small and coherent, but also from a samaritarian-like attitude towards society: I expect my high level of taxes is used for the benefit of all danes all over the country, and I expect rich parts of Denmark to help poorer parts. Politicians who cannot ensure this, have short political lives.
#11 Posted by Tom Sietam, CJR on Tue 10 Sep 2013 at 03:50 PM
Tom's comment underlines why Scandinavian and other policies are the outcome, not the cause, of relative prosperity and social cohesion rooted in 'tribal' cultural norms. Western European welfare states are under siege because of multi-cultural challenges that the United States has been dealing with since its founding. It is a commonplace now to be aware of France's ban on the burqa, Switzerland's ban on buildings with minarets, and reactions across the continent. It's not 'racial' per se - Gordon Brown's notorious accusation of bigotry toward a little old lady who was a lifetime Labour supporter was a result of her objection to the influx (obvious to tourists) of impeccably 'white' workers from places like Poland. It's because ordinary Europeans have observed the effect of the welfare state on 'other' populations. When I read about second-generation French kids of North African ethnicity conducting low-level rioting, because they can't find entry jobs in the French dirigiste state, I think - get out of France, their entitlements were designed for the natives. Come to the US, and trade low-wage starter jobs and opportunity for the faux security of the European states. An old story, but apparently one that needs to be relearned.
#12 Posted by Mark Richard, CJR on Wed 11 Sep 2013 at 09:17 PM
To clarify some possible misconceptions in Tom's comment.
Minimum wages are defined by the negotiations between unions and employers. If you as a worker is part of a union then practically there is a minimum wage, that is true. This is not necessarily the case for workers not in a union.
The "unemployment benefit" is basically a payroll insurance where you pay to get the atm 2 years. If you don't sign it and keep paying the premium you do not get any money if you become unemployed. It is backed by the state which is why the costs is only in the $850-$1050 range per year. Note that as an insurance it typically is possible to pay more for higher security.
The "reduced benefit-level" is much worse than the former. Purely money-wise it doesn't seem that much different, but the devil is in the detail. You do not get the benefit while you have wealth. Have a house? Sell. Have a car? Sell.
Many Danes don't know about it, which is kinda weird. The benefit still is awesome for with no registered wealth, no doubt about that.
Of course if you into the nitty-gritty details of the benefits it's a tangled mess of bureaucracy, so I probably didn't get it right either.
#13 Posted by Anonymous, CJR on Thu 12 Sep 2013 at 03:58 PM
Having lived in Germany, Japan as well as in several South American countries I think I can add my 5 cents, yen , centavos etc. Yes Danes and the rest of Scandinavia enjoy very high standard of living despite high wages and high taxes. US is now the lowest in overall upward mobility. The issue is not that they are all white, black, yellow etc (although that affects societal issues such as costs spend on education, corrections, police etc) but the overall systemic one. If the system is fair more people will respect it and go by it. It is especially true im Deutschland that has large scale minority in big cities and everyone for most part gets along (France is a complete different story).
The issue is who at the top politics in many countries and how is their system dominated by electoral politics aka.money? Most Danes, Germans etc. would not put up with public and sanctioned corruption that is fact of life in the US. That said Americans like to have an empire (or at least its elites do) and where is money actually going is more important than how much people are taxed or what is "entrepreneurial freedom" degree. If one could make a right wing argument one could say that many in EU have prospered under American military and nuclear umbrella that US taxpayers paid for. But to be devil's advocate one can also say that the European miracle was originally designed to last as long as the Soviet tanks did not cross the Rhine river (can you say Hiroshima). And that it was experimental at best. Cheers,
#14 Posted by derek , CJR on Sun 15 Sep 2013 at 06:43 PM
I'm sure Denmark is a wonderful utopia with a wonderful immigration process. Get started on the paperwork today and you too can bask in the glory that must be Denmark.
#15 Posted by Hershal Sheets, CJR on Sat 24 May 2014 at 12:45 AM
Why is it assumed there is no possibility that restaurant owners, certainly franchise owners could lower their profit expectations? Would they not even to preserve US tranquility? Because that's what it has come down to. If income disparity persists at the current extreme much longer the only options will be collapse or violence.
#16 Posted by Rosalind McDermott, CJR on Fri 5 Sep 2014 at 02:26 PM